Unit 6: Long Term Debt and Preferred Stock Financing

Long Term Debt: Bond

 Corporate Bond
A corporate bond is a type of debt security that is issued by a firm and sold to investors.
The company gets the capital it needs and in return the investor is paid a pre-established
number of interest payments at either a fixed or variable interest rate. When the bond
expires, or "reaches maturity," the payments cease and the original investment is
returned.
Types of Corporate Bond
1. Mortgage Bonds
3. Subordinated Debentures
2. Debentures 4. Convertible Bonds

8. Index Bond 5. Warrants

6. Income Bond 7. Put-able Bond

9. Serial Bond
Bond Innovation
1. Zero Coupon Bonds S&P
AAA
AA
A
2. Floating Rate Bond BBB
BB
B
CCC
CC
C
3. Junk Bond DDD
DD
D
Debt Vs. Equity
Debt Equity
1. Capital or Principal Repayment 1. Capital not Repayment
2. Interest Compulsory 2. Dividend Not Compulsory
3. Interest Tax Deductible 3. Dividend Not Tax Deductible
4. Increase Financial Risk 4. No Increase of Financial Risk
5. Increases probability of financial distress 5. No Increases probability of financial distress
6. Restrictive Covenants 6. No Restrictive Covenants
7. No Control Dilution 7. New Issue may lead to control dilution
End